Government to introduce 2.25% Levy on Sale of Investment ppty's

[Learner]

Hello Forumites,

Government will try and introduce a Levy on the sale of investment ppty's and abolish stamp duty on first home buyers. I can see an immediate benefit to first home buyers, although on the flip side investors do not only have to pay capital gains tax but also a levy??? I think this is a bit much....How else do you see that the introduction would affect investor pyschology???

Learner.

Here is the extract from The Daily Telegraph, sorry haven't become familiar on setting up the links.

""""Stamp duty win for first home buyers


April 6, 2004

STAMP duty will be abolished for almost all first home buyers in NSW under changes introduced in the NSW government's mini-Budget today.
More from our Afternoon Edition


But those seeking to sell their second homes will cop a 2.25 per cent stamp duty levy.

NSW Treasurer Michael Egan told a specially convened state parliament that the NSW government will run a deficit of approximately $300 million in 2004/05.


Mr Egan said an overheated property market was not good for the economy, the community or for young people and families battling to buy their first homes.


He said those owning a second or investment property could afford to pay a 2.25 per cent stamp duty on selling.


The duty would not apply to the sale of a person's principal place of residence and would not apply to the sale of farms, he said.


Legislation for the new duty would be introduced in May, with the levy to apply as soon as possible but no later than July 1, Mr Egan said.


The treasurer said the measures would raise $690 million a year and most of the proceeds would cover some of the $376 million lost in commonwealth grants.


As a counterweight to the 2.25 per cent stamp duty on the sale of an investment or second property, stamp duty will be abolished for almost all first home buyers.


"There will be a complete exemption for homes costing up to $500,000, with the concession phasing out between $500,000 and $600,000," Mr Egan said.


The treasurer also announced a major overhaul of the land tax system, with the land tax threshold of $317,000 being abolished.


"From July 1, the threshold will be abolished and fairer and lower rates will be introduced," Mr Egan told parliament.


The new land tax arrangement would provide businesses with a significant reduction in land tax bills, he said.


Mr Egan said the number of area health services would be reduced and their administration amalgamated to cut the cost of providing corporate services to frontline staff.


Health funding would be immediately boosted by $50 million, while the health budget for 2004/5 would rise by $572 million.


The mini-Budget contained $600 million for health capital works and an extra $241 million over the next four years for mental health.


The treasurer also announced a massive overhaul of the rail system, with an extra $300 million going towards passenger rail in 2004/05.


There also will be $1 billion worth of projects, with the existing 14 CityRail lines being separated and reconfigured into five stand-alone lines.


"These new works will create five independent lines with more reliable and frequent services and reduced congestion and delays," Mr Egan said.


Education also received a boost with the mini-Budget containing an increase of $356 million next year and a pledge to continue the government's promise to recruit more teachers and reduce class sizes.


Funding for the Department of Community Services will increase by $41 million next year, which includes money to employ more than 150 caseworkers.


The Department of Ageing Disability and Home Care will get a funding boost of nearly $88 million to expand residential accommodation.


Mr Egan said the government also would establish a new Department of Primary Industry by amalgamating the Department of Agriculture, NSW Fisheries, the Department of Mineral Resources and State Forests, to reduce expensive duplication of services.



AAP"""

[Aceyducey]

To make this clear - it's a NSW government initiative.

PPORs and farms are exempt.

Cheers,

Aceyducey

[ocelad]

Don't sell.

Cheers

ocelad

[PT_Bear]

My read on this is that there would be fewer sales. If it costs you more to sell, you will delay selling (if you can) or simply not sell at all.

This could push up prices and may push up rents to compensate.

[Learner]

My read on this is that there would be fewer sales. If it costs you more to sell, you will delay selling (if you can) or simply not sell at all.

This could push up prices and may push up rents to compensate.

I would agree with you PT that sale of inv. homes will be delayed and for those homes well beyond the exemption ie >$600k, i believe that some landlords will pass this onto the tenant.

Learner

[crest133]

Possibly expect some rushed settlements and conveyancing overload before the deadline, perhaps some cheaper deals from those already on the market wanting to beat the deadline . . . . if it all comes to fruition. :cool:

[geoffw]

Don't sell.

Cheers

ocelad"Don't sell" is OK to avoid the stamp duty- but they've also changed land tax calculations. Many people with land value of IPs below $300,000 will now be liable for land tax (at 0.4%).

I suspect this will also help them solve the problem of collecting. It might be a bit hard for them to determine that an investor has 4 properties totalling over $300K- now all they need to determine is whether or not it's a PPOR (as is the system in the ACT).

Many already paying land tax will be paying a lower amount now.

[always_learning]

Possibly expect some rushed settlements and conveyancing overload before the deadline, perhaps some cheaper deals from those already on the market wanting to beat the deadline . . . . if it all comes to fruition. :cool:

For first home buyers contracts had to be signed since saturday midnight .Big incentive to break and remake contracts for first home buyers awaiting settlement. I would be really pissed if I had exchanged contracts on a 90 day settlement last month and had to pay $12K stamp duty.

From my reading the "selling" 2.5% duty will apply ASAP but no later than 1-July....but when? so ready, set, go will it be a mini boom or a mini bust (many sellers will be motivated)? bargains should be available !!!!! Great time for IP sellers and first home buyers!

For full details of the mini-budget read this (http://www.treasury.nsw.gov.au/bp03-04/minibudget/minibudget-04.pdf)

[Whadup dog?]

To make this clear - it's a NSW government initiative.

PPORs and farms are exempt.

Cheers,

Aceyducey

Actually I think you will find, Aceyducy, that the exemptions are for PPoR's less than $500,000. That means that probably 40% of Sydney will be affected in a bad way. Great news for those buying their first house in regional locations though.

[PT_Bear]

A stamp duty saving for a first home owner means that they have more money. If they're borrowing 90%, this can potentially push their buying power up by 10 times the saving.

As a precedent, the first home owners grant cost the first home owner a lot more than what it saved them. At the end of the day, this won't benifit the first home buyers much...

[NigelW]

How @#$*ing stupid is this government??!?!?! :mad:

The immediate impact will be to reduce sales. What will reducing supply do? Increased demand. What will increased demand lead to? Higher prices.

Equally, what will people who want to sell going to do? A complete pass through to the buyers - so up go prices again!!!!

Of course, the flip side of this is that if you can access your equity without selling you'll win both ways... :D

The stupidity and short sightedness of pollies never ceases to amaze me...seems like another way to ensure the rich get richer and the poor get poorer... Just make sure you're in the right group.

[perky29]

So how would this work if you sold your PPOR and then moved into your IP you had for (lets say) 5 years - then moved on again and again every 5 years?

[JumJones]

Nigelw - I suspect the government knows excactly what the ramifications are.

Policies are usually aimed at the average punter, give them a warm and fuzzy feeling once in a while. I'm interested to see what other changes are coming in the near future - give with one hand take with the other kinda thing.

Either way - as an investor you should be able to structure your affairs in a way that benefits your situation no matter what policies come along. Land tax can be managed by holding ips in multiple trusts. Mind you - I know that if i'm paying lots of land tax, as far as my financial journey goes it generally means I'm doing something right :) I dont mind paying a bit of tax, gotta fund schools and hospitals somehow.

Dont forget pollies invest too, so they arent going to cripple themselves. ever.

[PT_Bear]

Possibly expect some rushed settlements and conveyancing overload before the deadline, perhaps some cheaper deals from those already on the market wanting to beat the deadline . . . . if it all comes to fruition. :cool:

If I were buying under these conditions, I'd be trying to do this. If I were selling an IP, not a chance because I wouldn't want to pay the extra tax...

JumJones, you're absolutly right. For those who are serious about what they're doing, they'll roll with it and turn it to their advantage. This is little more than a political ploy to buy votes from those who really don't understand it.

[spark]

1) IMO Levies/grants/differentiated taxation - all are bad.

2) It may be seen as an early attempt to stop the price crash in its early stages - more money for reluctant buyers, less initiative for worried potential sellers to sell.

3) It can also be seen as a government's "trap" for investors to keep them on subsidizing a comparatively cheap and low yielding rental market.

4) Something inside tells me that:
a) Nobody can beat the market, even the local government (LOL).
b) Government manipulations usually exacerbate the current market situation.

[Jacque]

Land tax can be managed by holding ips in multiple trusts.

JumJones,

Actually trusts already have no exemption amount ie: they pay land tax from the first dollar. My annual land tax bill for one of my props this year was just short of $1000, with a land value of just $54,000. Do the new changes mean that I'll only be up for .4% instead of the current 1.7%, as GeoffW as indicated?

I agree with Nigel here, in that this change will simply fuel demand, as well as decreasing supply. After all, if I was thinking of selling, I'd hike on the extra cost of stamp duty straight away to cover myself.

I have to laugh at the govt and their assumptions:
"Mr Egan said an overheated property market was not good for the economy, the community or for young people and families battling to buy their first homes.

He said those owning a second or investment property could afford to pay a 2.25 per cent stamp duty on selling".


Yeah, right! Like we're all the rich mongrels who can afford to throw hard earned money away. Geez, if it's not enough already with purchasing stamp duty, capital gains and land tax.......
What's next? Negative gearing advantages abolished?!

I might just take up the pokies instead..... getting very disillusioned here... !

[forrestd]

Actually I think you will find, Aceyducy, that the exemptions are for PPoR's less than $500,000. That means that probably 40% of Sydney will be affected in a bad way. Great news for those buying their first house in regional locations though.

really?

I can't find that clause in the budget statement.

you're talking about the sale 2.25% levy?

[Whadup dog?]

Yeah I think you are right - got mightily confused there.

Thanks for sortin it out for me.

BTW, if you currently have IP's in two names, does that mean you can double the landtax threshold ie. if you have two properties both in two names, with a combined land value of $150,000 you are safe?

[Aceyducey]

1) IMO Levies/grants/differentiated taxation - all are bad.

2) It may be seen as an early attempt to stop the price crash in its early stages - more money for reluctant buyers, less initiative for worried potential sellers to sell.

3) It can also be seen as a government's "trap" for investors to keep them on subsidizing a comparatively cheap and low yielding rental market.

4) Something inside tells me that:
a) Nobody can beat the market, even the local government (LOL).
b) Government manipulations usually exacerbate the current market situation.
Interesting viewpoint Spark.

What price crash?

How are governments 'trapping' investors? How would trapping them make them choose to subsidise the market?

Cheers,

Aceyducey

[djsherly]

One thing I learned in high school economics is impact and incidence of levies/charges/etc.

Generally this is spoken of in negative terms, eg higher insurance premiums (the incidence), affect consumers (impact).

It can also applied in the positive context:

The incidence in this concession is on the buyer, but the impact will be on the vendor. Even thought the stamp duty will be abolished, market forces should ensure that the prices will rise to fill that gap. Therefore, it would appear that while the target benficiary is the first home owner, the real winner is the vendor of a sub 500,000 property.

What are your thoughts on this?

c.

[landlubber]

The article keeps saying "first homer buyers". It's not clear to me whether or not they are abolishing stamp duty on the purchase of an IP .

Have I missed something ?

LL

[perky29]

Like Sea_Change does in QLD,
I wonder if purchasers in NSW are now better off having multiple trusts like you do in QLD?
That may be a way to minimise it - any takers?

[Sim]

Actually perky - if I'm correct in my understanding of the announcement, there isn't any real change for trusts in NSW - in fact it's almost a benefit. With the removal of the land tax threshold for personal investors (trusts never did have a threshold anyway), there is no longer any reason not to buy in a trust (at least not for land tax reasons).

Multiple trusts wouldn't help you unless the scales are sliding where the first $X of land value costs less in land tax than the remaining value. I'm not sure what the new scales are yet - have they published them ?

[spark]

Interesting viewpoint Spark.

What price crash?
The sideways/flat/seasonal market/low clearance rates/"negative growth" one.



How are governments 'trapping' investors? How would trapping them make them choose to subsidise the market?

Cheers,

Aceyducey
1) They are seduced and trapped by the government with the negative gearing practice, providing low cost rents (comparative to house prices), that are hopefully compensated by CG.

2) While there are less CG prospects in the near future, and there is a chance that some would like to capitalize on their past CG and allocate more of their resources to other kinds of investment, the more impediments the gov't will put on selling those low yielding properties, the more it'll keep the investors inside. BTW, I think it might help to keep the prices up, i.e. less "flat" ;-)

3) Letting a property at less than 2% yield a year gross, is not a landlord's "choice" to subsidize the tenant, it is a market condition. Why don't landlords raise the rent up to a decent yield? They just don't want to? They prefer to keep it low? C'mon!

Why I call it subsidizing?
Let's play math, hypothetically:
A property in Mosman that might have been sold for 1.6 Mil is rented 600pw, which is 31K pa.
Put the money in an at call account (5.40% @ Citibank, I'm not their shareholder or worker, just an example) and you get 86.5Kpa
That is, somebody at this point PREFERS to lose 55.5Kpa on his capital. Is it his choice? Maybe he is trapped... High selling costs? High CG tax? Too high LVR? "Seasonally & temporarily" weak market? And now they come with their more-than-one-year's-rent levy of 2.25%.

Please don't get me wrong, I do not politically approve that levy, even if it's going to keep my personal rent low.

[Jamie]

The new land tax scale (with no threshold) is:

$0 to $400k = 0.4%
$400k to $500k = 0.6%
Over 500k = 1.4%

http://www.treasury.nsw.gov.au/bp03-04/minibudget/minibudget-04.pdf

Jamie

[Indifference]

I forsee some areas realising a much greater impact than others. For instance:

1) Albury/Wodonga (twin border towns)... where would you buy now if you lived there & were a first home buyer?

2)Canberra/Queanbeyan... what is going to happen to local owner occupied population in Queanbeyan now??

There are many more areas that will have 'localised' and potentially, disproportionate effects resulting from this change. It will be great for some.
Just think about the first home buyer: no stamp duty for NSW purchase+ $7k grant = instant equity... & since rents will be very likely to rise to cover investors costs, what will the financially capable tenants do??? Probably buy.

I have no idea what the NSW pollies are consuming in their lunch hour, but it sure isn't sandwiches!!

:D for first home buyers
:( for renters
:eek: for investors
:confused: for me

[Jacque]

The new land tax scale (with no threshold) is:

$0 to $400k = 0.4%
$400k to $500k = 0.6%
Over 500k = 1.4%

http://www.treasury.nsw.gov.au/bp03-04/minibudget/minibudget-04.pdf

Jamie

Thanks for that, Jamie. Most helpful :)
Hmmm. Seeing as there's now no threshold, there will be lots of unhappy investors now forking out land tax for the first time. Because I already have props in trusts, I'm used to saying goodbye to hard earned cash for no good or logical reason. On the one hand, some bills will decrease (owing to the lower rates) whilst I'll be receiving bills on previously exempt property.
Give with the one hand, whilst taking with the other......

I know who I won't be voting for in the State elections :)

[Alan H]

Well, like so many I just sat down and did my Land Tax comparison from this year to what it will be next year.

I'm not happy Bob!!!!!

Yep........stamp duty in.......land tax while you hold.......stamp duty when you exit.......capital gains tax.....etc etc........me thinks the tax level is getting just a tad ridiculous.......

Will I be passing these costs onto my tenants? Every cent that the market will bare!!

I hope when tenants watch the news tonight and take a disinterested glance at how those 'rich' property investors are going to get slugged they stop and think a little how it will affect them too.

I can obviously still see the 'bigger picture' and I know over 12 months, after tax deductions and future rent increases that the weekly cost to myself won't be dramatic. However, there will be plenty paying for these taxes beyond the landlord. Remember that one at voting time Bob.



:)

[keithj]

JumJones,

Actually trusts already have no exemption amount ie: they pay land tax from the first dollar. My annual land tax bill for one of my props this year was just short of $1000, with a land value of just $54,000. Do the new changes mean that I'll only be up for .4% instead of the current 1.7%, as GeoffW as indicated?


That's my reading of it - trusts now pay 0.4% from the first dollar (assuming LV < $400K), instead of 1.7%. And it appears it's on a per property basis. So, as long as no individual land value is greater than $400K then the max is 0.4%. If this is incorrect, then the obvious loophole is multiple trusts. I see this budget as a big +ve for buy & holders, but a big -ve for fluff & flickers. Guess which category the pollies are in ?

[Thorpey]

Bob's time is now up. Arrogance will nett him retirement. He thought outside the square and will find himself outside the "house".

Get ready for the changeover folks.
Liberal Sate Govt's and (god forbid) Latham led Fed Gov.........?
One thing for sure, the fighting will continue.
Sad, very very sad indeed.

One thing I need to ask though, is all this retrospective such as IP's purchased before announcement remain sale Tax (2.25%) free....???

The discussion will expand I'm sure.

Thorpey.

[Peter 14.7]

I see it as having gouged the IP buyers on the way in, now they get them on the way out. More reasons to buy elsewhere than NSW. :mad:

At 4pm today I met with an agent managing as ale for a client and this ensured we do it before 1 July.

Regards, Peter 147

[jahn]

Hi
Just for clarification, does this mean that any IP in NSW will now have an annual land tax of 0.4% - $100k land value = $400 tax ?

Is this some devious plot of the Gov to get investors to buy some of the oversuplied units instead of house & land packages. (if this was in conjunction with the Gov of S.A. I would be convinced this was the case. :rolleyes: )

jahn :rolleyes:

[always_learning]

Yes $400 per 100K; that is my understanding and reading of the transcript! And if/when you sell they government will put it hand out for another 2.5%!

[Lplate]

Hi
Governments always try to get more tax and there is always some rationalisation, no matter how flimsy.

They reckon they will win more votes than they lose by playing the blame game (ie greedy landlords are responsible for high prices). The blame game is the politician's favourite way of diverting attention away from real problems.

The pollie gets to strut the stage pretending he's done something. The media gets a cheap headline or two and a few labels to apply (all they need when 'dumbing out' their readers).

But this will push up prices because buyers can afford more. Rents will rise inevitably because more taxes are being collected overall from the property sector. Property, like any other business must be profitable or perish.
Lplate

[Gee Cee]

I have not read all the links as yet. Although it appears the investor from day one will now be hit with Land Tax. No matter the value.

I already pay stacks of this so will need to re access / calculate etc if it is better or worse.

The greedy rich investors need another hit in the pocket. After Re-valuations, rate increases, land taxes, higher insurances, etc , etc.

But don't dare raise ya rents. ya bunch of Capitalists . Effecting good honest voters.

The overheated market needs to be culled. Then on the other hand the boys in Canberra are spruking what a wonderful job we have done . Unempolyment is soooo Low. Need we say property over last 4 yrs has had a little bit of flow on effect here. (5 yrs ago builders were driving old one tonners. Now even the apprentices are driving XR8 utes or SS Commodores) Flow on from building flows on & on through all areas from finance right down to a slab instead of a 6 pack.

Anyway i am going to see if I can get a bit of the $241 million allocated to mental health. Maybe we will all need it. :rolleyes:



Geeeeeeee CeeeEEEE EEEEeeee

[jahn]

Thanks AL. I guess it's no surprise that they have come up with another way to extract taxes, but what I can't believe is that someone who represents the people of the state of NSW can make this statement;

"Mr Egan said an overheated property market was not good for the economy, the community or for young people and families battling to buy their first homes."

What about the record low level employment built on the back of building industry.
The NSW Gov has had their fiscal backside covered for some time now due to the unexpected and unforcast property 'boom' windfall, and stamp duty revenue.
Without it, what sort of defecit figures would we have seen, and how quick do they react to blame someone (read anyone) else when things don't go to their plan

OK so he got 1 out of 3 right - "or for young people and families battling to buy their first homes."

jahn

PS - Can anyone help with the maths on this statement,

"The treasurer said the measures would raise $690 million a year and most of the proceeds would cover some of the $376 million lost in commonwealth grants."
So if we winge our backsides off on TV because we get shortchanged to the tune of $376 million, we raise taxes to the level of $690 million, and that will cover S O M E of the lost grants ? ?

Does not compute, or as someone else said it better a few years ago,
"Please explain" :rolleyes: :rolleyes:

jahn

[geoffw]

Will I be passing these costs onto my tenants? Every cent that the market will bare!!A bit difficult- rental levels are a function of demand and supply. Taxes may change the supply equation slightly- but it probably won't change the demand much (unless potential renters get lured by paying no stamp duty- that may be a real problem).

[Aceyducey]

The sideways/flat/seasonal market/low clearance rates/"negative growth" one. AAhh - so a slower sideways market with a few dips is a 'crash'. Thanks for the revised definition :)

You'd better avoid SA, WA & QLD where property prices are still on an upswing in many areas. And avoid regional areas where it is still possible to achieve positive gearing (though larger deposits will make any metro property positively geared as well).

Spark,

I note that you personally rent. Are you also one of the investors you reckon has been 'seduced and trapped' by the government? Or have you managed to avoid the trap by not holding any IPs?

Note that selling IPs to enter other investments is rarely a good strategy, whether there are selling costs or not. The better approach is refinancing. You pull out the extra equity & invest it wherever you like.

There are some flaws in your Citibank example you should consider - tax on interest, banks fees & charges - which make that $86K less than $50K in practice. AND you don't buy the property in Mosman by paying the entire $1.6M!!!!! You use leverage to buy at 1:20 (95% lend).

Do the numbers a bit deeper & you'll find that even at 3-5% annual capital growth over the next 10 years, owning in Mosman using the leverage (even at 60%) is significantly better than putting cash in bank.

Cheers,

Aceyducey

[Gee Cee]

:( I think at this point of the cycle many 1st home owners are topped out as to what they can afford.

Even with No Stamp Duty.

Interest rate rise and high prices top out many people.

Unless they give up eating. :eek:

With financial burdons pushed to paying off high mortgages proportions of divorces / separations rise. Anyone agree?

Then desperate sales occur. Sad but true.

Agree or disagree :confused:

[dantheman]

Yet even more reason to piss off overseas.
Firstly one of the highest tax rates in the world, after paying nearly 50% tax on earning whatever's left is then taxed at 10% GST on the building cost of the house you are buying. At the same time you pay $10k stamp duty on a $300k flat.
Then would be paying yearly land tax out of already heavily taxed income.
At the same time you are supporting an extremely low yielding housing market (that the government won't and prefers us to do) providing housing with negative cashflow while renters enjoy some of the lowest rental costs.
Then if heaven forbid you wish to sell the property pay another 25% CGT tax, PLUS another stamp duty tax on top of that.
THEN with the leftover money you will get taxed again, GST or stamp duty etc depending on what you spend it on.
Glad I moved to UK. I want to come back one day, but now I don't know now. Highly skilled migrant visa works for me :-) and many other skilled people who are fed up and leaving this country. Australia risks becoming a banana republic once again if the government keep on wittering away at the small rewards of those who have the discipline to make the sacrifice to lifestyle that is investment. By investment I dont just mean money I mean time, study, education as well. When the time comes to reap the reward for your effort the time also comes to put your hand in your pocket big time for the government. Even though you are paying off all those student credit cards, HECS debts etc you still must pay your slug in huge taxes. Forget spending money, let's support everyone else for them.
hahaha just letting off some steam guys, I know we won't become a banana republic, I know we have to pay tax (even though it's taxes on taxes on taxes).
It will be real interesting though to watch the market reactions. The market is king, in the long run supply and demand rule. What the government take from one hand will flow back into our other hand - be it through higher rents or increased capital gains due to restricted long term supply.
And I'll never sell, I'll never give up my property mwahahahaha *evil laugh* and take my debts to the grave.

ps New Zealand is looking good - very favourable taxation indeed (especially compared to Australia).

[Tim]

really?

I can't find that clause in the budget statement.

you're talking about the sale 2.25% levy?


Straight from Carr's statement to the Speaker on abolishing stamp duty for first home buyers:

"There will be a complete exemption for homes costing up to $500 000, with the concession phasing out between $500 000 and $600 000"


Timbo

[Tim]

Well,

it will be DAMN interesting to see where this goes - I for one am not suprised and think our taxes are going to get worse before better. I have read that:

- 20 years ago 18 taxpayers per 1 welfare recipient
- today 6 taxpayers per 1 welfare recipient
- 2020 1 taxpayer per welfare recipient

I know in 1989 our welfare budget was around 30% GDP, in 2003 it was close to 45%.

Even if the above is not totally accurate it sure highlights a trend IMHO

So does this new tax mean:

1) suddenly new home buyer's affordability improves
2) sale of IP's incurring the sale levy decreases
3) rents go up to dampen effect of land tax
4) the above impacts demand and supply of NSW sub $500k
5) these prices go up

???????????
Oh sorry, forgot, silly me, then Carr takes credit for fixing up Howards/Costello's tax grab mistakes?

Oh well wot can ye say..........


Timbo

[Alan H]

A bit difficult- rental levels are a function of demand and supply. Taxes may change the supply equation slightly- but it probably won't change the demand much (unless potential renters get lured by paying no stamp duty- that may be a real problem).

Hi Geoff,

I did say "what the market would bare".... but I really wonder whether this is going to generate some REALLY fundamental changes in NSW Property Investment.

Rental Yields(especially in Sydney etc) have been dropping to such low levels that no one in their right mind would buy an investment property for these ridiculous returns. Capital growth (with a barely acceptable level of tax) has been what has kept things going.

If we are to assume that much of the market has peaked and that we can expect somewhat subdued Capital Growth in the next couple of years, I really wonder whether these tax changes will be the 'last nail in the coffin' for some property investors. Although they're even trying to nail the door shut with the exit Stamp Duty. :(

A reduction in property investors will obviously affect supply and send up rents. What will cause it I'm not exactly sure, but current Rental Yields are not sustainable in the long term. Something has to give and this may well be it.

Time will tell.



:)

[spark]

Spark,

I note that you personally rent. Are you also one of the investors you reckon has been 'seduced and trapped' by the government? Or have you managed to avoid the trap by not holding any IPs?
Acey,
As I mentioned earlier, I'm a newcomer to this country, so please apply a great degree of caution to any of my local unexperienced analyses :). About my traps, I had avoided some but in a different situation and in a different place.There are some flaws in your Citibank exampleThere must be you should consider - tax on interest, banks fees & charges - which make that $86K less than $50K in practice. How about the tax, council rates, agent fees & maintanence expenses on that 31K from rent? And, BTW, there are no bank fees. 86K after tax is 58.7K AND you don't buy the property in Mosman by paying the entire $1.6M!!!!! You use leverage to buy at 1:20 (95% lend). But then one should borrow 1.52Mil, that is repayments of 2046 pw IO @7%, 106.5K pa for "renting" that money from the bank!Do the numbers a bit deeper & you'll find that even at 3-5% annual capital growth over the next 10 years, owning in Mosman using the leverage (even at 60%) is significantly better than putting cash in bank.

That is, if there is growth. And if not?


Now let's look from another angle, hypothetically: Your investor pays 106.5K pa interest for "renting" the cash FROM the bank in that proposed 1:20 leverage. The cashed up tenant gets 82K pa for letting the above mentioned sum TO the bank, that is roughly 56.5k after taxes. He pays the landlord 31K for living in a well maintained property, all expenses included, and still gets his 25.5K change.

What do we have here? - The tenant lives "for free", plus gets 25.5K (after tax) from his leveraged landlord, plus any risks of market fluctuations and illiquidity are on the landlord. What do you think of this? :cool: :)

[Jamie]

Heres one part of the Budget Release that jumped out at me as being patently absurd, and doesnt seem to have been mentioned yet (regarding the 2.25% sale levy) ...


To ensure that only property profits are being taxed, properties will be exempt from the duty where the vendors sale price does not exceed 12 per cent of their original purchase price...

So, in other words, to avoid the levy you need to have bought a house for 200k and sold it for less than 24k...

Or...

If you bought a property for 200k, but due to some unforseen circumstance were forced to sell it for 150k, not only would you lose 50k of your original investment, you would also be liable for a sale levy of $3,375...

Im hoping this is a mistake... Any thoughts?

Jamie.

[alpina]

hi jamie,

interesting pt you raise.

when i first read the summary earlier today, i took it to mean 112% of the original cost. 12% is absurd and cannot be serious. recall something about them phasing out this break at 15% (ie, 115% by my reckoning).

julie

[Jamie]

Hi Julie,

I agree, and am hoping its a misprint in the release.

The quote, however, was lifted verbatim from the speech, so maybe our esteemed leader got it wrong (wont hold my breath for an apology though :) )

Jamie.

[BV]

I am not so sure that its all bad news.

Investors don't have to sell.
The government will probably find that they are not able to raise the 690mil.
because investors won't sell.

The new measures will probably stop speculators from getting into
property. The serious investors will still invest.

It seems that we will have a shortage of property after July and thats
likely to push prices up.

Properties below 500K will now be even more affordable and they will be in
demand. Perhaps now its the time to snap up a few cheapies before they go
up. :D

The new land tax is a problem for those previously excempt but its all tax
deductible anyway. I don't mind paying 50% of the 04% in land tax for an
extra capital gain of lets say 5%?

I can see a Shortage of rental properties in the future.
That shortage is likely to push rents up. :)

cheers

[Aceyducey]

What do you think of this? :cool: :)Caution is one thing Spark, but there's a difference between caution & ignorance!

I think you need to do a lot more work to understand property :)

'If there is any growth'....

Well look at the key indicators & trends over the last 30+ years - you can expect house prices in Sydney to double in 7-8 years (per last 4 cycles).

Let's say this cycle is extended due to the extended boom - to 10 years.

That means that over 10 years your $1.6M property increases in value to $3.2M - and keep in mind that you carefully selected this property after quite a bit of research, we're not throwing darts at a map here.

NOW not that many property investors buy one $1.6M property as their portfolio anyway - however I'll run with it because you seem fairly deadset on this level of investment.

So you make 160K profit per year from CG - PLUS your rental income of $31K (hmm - dunno how you work this one out either, but it still works) - we'll even say that rents don't change for 10 years (and that interest rates don't change to be fair). Let's say it costs you $100K on top of this per year to hold - Government subsidies half of this via negative geating & you pay $50K per year out of your pocket...

Thus your profit per annum is cut right back to an averaged $110K per year.

This is NOT taxed unless you sell the property....if you do sell you pay 50% in CGT, walking away with $800K.....

Now let's look at your Cash at Bank - oh dear, the property profit AFTER tax is quite a bit more than the $567K (10x your Citibank figure...which is using tax rates assuming it's your sole income) you get for keeping the money in the bank - assuming these interest rates remain stable as well & they don't introduce any fees in that period.

But I've forgotten compounding - that would make your bank interest over 10 years a grand total of $963K...but you have to then pay tax each year - assuming it ISN'T your sole income you only walk away with $510K at the end of ten years...hmm worse than your no-other-income figure.

Of course, you don't need to pay the $800K in CGT to the government anyway - you can simply hold the asset & drawdown on your equity - either to buy other assets or to buy a tax-free income stream, such as an annuity.

Even if you do decide to sell, you can carry losses over (assuming you're a smart investor & buying via a Hybrid Unit Trust to allow both loss carries & negative gearing) and significantly reduce the tax you pay anyway.

So in your example Spark, property is far and away the better investment.

Spark if you've got a serious intention to invest in property you'd do well to read this forum some more and invest some time reading some good property books.

Cheers,

Aceyducey

[BV]

To ensure that only property profits are being taxed, properties will be exempt from the duty where the vendors sale price does not exceed 12 per cent of their original purchase price..
Jamie.

Jamie/Alpina
Its late in the night but to me it seems like they won't be taxing you if you
are not having a gain of more than 12% on an IP.

cheers

[investor]

Hi all

Well the Labour government has now actually helped the rich for change :)

Firstly everybody who had ips in a trust will benefit as the their land tax bill will be cut considerably. :)

Now let's consider an investor who has 20Mil worth of ips in a trust :

Previously he was paying 20 000 000 x 1.7% = 340 000 per year

Now he is paying
400 000 x 0.4% = 1600
100 000 x 0.6% = 400
19 500 000 x 1.4% = 273 000

Total of 275 000 per year that's a saving of 65 000 per year

Now let's go a step further. Let's say he has 20 x 1Mil ips in 20 different trusts

Previously it would have been the same 340 000 per year.

But now it's
400 000 x 0.4% = 1600
100 000 x 0.6% = 400
500 000 x 1.4% = 7000

That's 9000 for each ip so a total of 9000 x 20 = 180 000

That's a great saving of 160 000. That's almost HALF his previous land tax bill.

I like this labour government. :)

Regards

Investor :)

PS. It's late and my figures may be totally wrong, please correct them if they are. :D

[np2003]

Hi
But this will push up prices because buyers can afford more. Lplate

Are you sure about that, esp considering the affordability rate is incredibly low atm. People are up to their necks paying off a loan.

Sure, homes are cheap compared to the UK, HK, Japan, etc but compare the population vs land. Australia is over priced.

[Jacque]

Australia risks becoming a banana republic once again if the government keep on wittering away at the small rewards of those who have the discipline to make the sacrifice to lifestyle that is investment. By investment I dont just mean money I mean time, study, education as well. When the time comes to reap the reward for your effort the time also comes to put your hand in your pocket big time for the government. (especially compared to Australia).

Hehe Dantheman,
You have hit the nail on the head! The very govt that supposedly "encourages" us to be independent and save for our own retirement (rather than rely on the pension) through investment vehicles has penalized us for the privilege. They are using our education and motivation against us. Then again, we are all able to "afford" this, so we should suffer shouldn't we?
*Jax goes and buries her head in her Capitalist Pig manual again *

[geoffw]

My reading of that wording is that you only pay the levy if you stand to make more than 12% on purchase price.

If bought for $200K, sold for $223,999 no sale stamp duty.

If bought for $200K, sold for $224,001, sale stamp duty about $5,000.

[Aceyducey]

Sure, homes are cheap compared to the UK, HK, Japan, etc but compare the population vs land. Australia is over priced.
A lot of that apparent bulk is desert NP2003, and a lot more of it has inadequate services to support even moderate populations :)

I prefer to think of Australia as lots of islands of population connected by long roads.

Cheers,

Aceyducey

[perky29]

In this mornings SMH, one of our forum members ROSSV features on page 7.
Ross says his rentals will need to increase by 10% to cover this new land tax - and he probably sell at least one property as a result.
Ross is right - these taxes are over the top.
Fancy making you pay 2.25% on the whole amount!!!! - rather that the capital gain which would have been a slightly fairer way of doing it.
So basically, some principles will become even more relevant from now on for the serious property investors -
1/Hold in different trusts to minimise land tax per year.
2/Use your equity and NEVER sell.

[Thommo]

I prefer to think of Australia as lots of islands of population connected by long roads.

Cheers,

Aceyducey
A good analogy. Like a dry Indonesia!

T

[Jamie]

I wonder if the new levy will have any affect on Agents selling fees...

Now on the sale of a 500k property, not only do you have the 25% CGT levied on the profits, and the agents $12k+ selling fee (approx 2.5%), now you have the additional 2.25% sale levy (another $11k+)

I wonder if this will spark a new bidding war between agents to secure the dwindling number of investors selling properties due to the new levy.

If this additional levy is coming out of each and every sale, will agents be forced to drop their fees?

Jamie.

[NickM]

This Government is not totally stupid.

By getting a grip on land tax with no threshold provides them with a steady income stream regardless of the property cycle. Boom or bust they get their dollars.

It also appears that there is no allowance for indexation in the proposed legislation, thus land values will increase and ultimately the $300K land will become $450K in a few years and into the next bracket.

Rents will have to increase to cover the impost on the investor.

The worst affected will be the battler (who rents) and the self funded retiree with 1 or 2 IPs that cannot carry the land tax burden in the short term.

The main advantage is for those that have IPs in Disc/HDT as overall they will pay less land tax.

The initiatives for the first home buyer are great, however the cost of the stamp duty on sale will be ultimately borne by the purchaser which may well include these people anyway.

Most sellers not forced to sell, know how much they want in their hand after agent fees etc. This stamp duty will become a function of the sale price and may well force prices up.

This reinforces the strategy of buy and hold for the long long term.
Nick M

[alpina]

So basically, some principles will become even more relevant from now on for the serious property investors -
1/Hold in different trusts to minimise land tax per year.
2/Use your equity and NEVER sell.

how will holding in different trusts minimise land tax per year? Its my understanding that under this new policy, that the tax will be applied to individual properties rather than the sum of the properties, probably with the aim of stopping people from setting up multiple trusts with this end in mind.

regards,

julie

[NickM]

Julie
Dont think the multiple trust theory. My reading seems to indicate that it is a property tax and will apply per property, but we will probably have to wait until we see the legislation.

[always_learning]

Land tax I thought was a tax on the rich and/or rich speculators. Tax the rich on their total land holdings!

Luckly that we have a Labor government which has now democratized it....we all have to pay! :mad:

Like Nick said, it is not indexed, in 10 years everyone will be paying. Everyone in Sydney almost certainly will in 10 years will be paying the top 1.4%.

[np2003]

A lot of that apparent bulk is desert NP2003, and a lot more of it has inadequate services to support even moderate populations :)
Aceyducey

Who says it's not possible populating deserts. Think Las Vegas ;)

[np2003]

Land tax I thought was a tax on the rich and/or rich speculators. Tax the rich on their total land holdings!


Isnt it ironic how we have property investors here complaining they aren't rich and they are the battlers. Yet look in the forum and you see plenty of threads with polls asking "Are you are millionaire", with a high percentage of those folks saying "YES". If you are have over a million dollars worth of asset, I don't think you should call yourself the average battler.

Pay up! :p

[Baloo]

Isnt it ironic how we have property investors here complaining they aren't rich and they are the battlers. Yet look in the forum and you see plenty of threads with polls asking "Are you are millionaire", with a high percentage of those folks saying "YES". If you are have over a million dollars worth of asset, I don't think you should call yourself the average battler.

Could not have said it better myself really. I see no one congratulating the government on making it easier for first home buyers to get their sub-500k first home.

[Aceyducey]

Could not have said it better myself really. I see no one congratulating the government on making it easier for first home buyers to get their sub-500k first home.
Because they haven't Baloo :)

Smoke & mirrors!

NP2003 - are you a battler?

Cheers,

Aceyducey

[PT_Bear]

how will holding in different trusts minimise land tax per year? Its my understanding that under this new policy, that the tax will be applied to individual properties rather than the sum of the properties, probably with the aim of stopping people from setting up multiple trusts with this end in mind.

regards,

julie

The land tax rates are (I think):
0 - 400,000 x 0.4%
400,000 - 500,000 x 0.6%
500,000+ x 1.4%

Keep in mind that it the cumulative value of a properties land component. If you have several trusts with less than $400,000 of land value each, you'll never have to pay more than 0.4% land tax. If you had all of your property in one trust or in your own name, you'd end up paying more if the total land value was more than $400,000.

I'm assuming that NSW doesn't count all of your trusts as one entity.

[not a sheep]

Afternoon all,

Just thought the below was good for a quick ironic read.

This is quoted from SMH

http://www.smh.com.au/articles/2004/04/06/1081222468831.html

"Who's going to pay for it?" yelled an excitable John Brogden across the table.

"It's actually you and me," replied Michael Egan.

Not quite right, Michael. Although the Treasurer is a paid-up member of the Meriton generation - those people who own investment units in the large apartment developments that have been built during the property boom - John Brogden has only his Bilgola house.

Another person who will not be paying it is Bob Carr, who believes in escaping all these dreadful NSW property taxes by investing outside of the state. He used to own an investment in Victoria, now it's a rural property in New Zealand".

Good to see how our premier views his own policies in the local market for property investment .

Regards,

NAS :rolleyes:

[PT_Bear]

It's occured to me that this might make it easier to wrap properties. Most wrapees are first home owners thus stamp duty is never an issue for them.

By timing your wraps you avoid the land tax and you simply factor in the extra 2.25% into your sales cost.

[always_learning]

Isnt it ironic how we have property investors here complaining they aren't rich and they are the battlers. Yet look in the forum and you see plenty of threads with polls asking "Are you are millionaire", with a high percentage of those folks saying "YES". If you are have over a million dollars worth of asset, I don't think you should call yourself the average battler.

Pay up! :p

No! I will just choose to buy somewhere else! Mind you I think Victoria where my IP's are (also Labor) will also democratize land tax.

[skater]

Isnt it ironic how we have property investors here complaining they aren't rich and they are the battlers. Yet look in the forum and you see plenty of threads with polls asking "Are you are millionaire", with a high percentage of those folks saying "YES". If you are have over a million dollars worth of asset, I don't think you should call yourself the average battler.

Pay up! :p

I have no problem with the new Land Tax as it is applied to everybody unlike the old version which was very hard on people who had a few props. I do have a problem, however, with the Stamp Duty on sale of a prop. The government is always saying they want people to self fund for retirement, and as soon as you try to do that you are taxed at every turn. They should be encouraging investment instead of penalising it.

[Sim]

It's almost as bad as super now - 30% when it goes in (for high income earners) and 15% when it comes out - why would I bother when I can get better returns and greater control over investing my own money after tax ?

[Peter 14.7]

Hi All

RESPONSE
Have spent a busy day advising clients on the changes I can say, yes, there is a general panic in the market for the average 1 or 2 IP investor. Many angrey with Carr and threatening to vote him out.

IS IT FAIR
Some comment here of fairness applying land tax to all IP but hang on, if thats fair where the annual share tax?!?!

Lets see.... I own $100k in shares so please take 0.4% or $400 tax each year Mr Carr. But hang on, because of inflation my shares rise in value (but probably not return) so the $400 grows each year.

It is plainly not fair. No Stamp duty in or out on shares so whuon property. It is very bad policy to start treating different forms of investment on the government of the days interputation of equality (social engineering).

BENEFIT TO FHO
As raised how p#ssed would you be as a FHO having bought last week, last year and coughed up the 4%! Up until yesterday Carr was repeating the mantra "No relief on Stamp Duty".

WHAT TO DO
So do we invest in other states and let NSW become and enclave of the mega rich or public housing? Sure rents will rise so smart investor like us will find a way to roll it up. But whilst this is bad policy it is very good vote buying.

AGAIN DO THE NUMBERs

12% of aussies are IP owners so a whopping 88% are not. And those whose votes matter (western sydney) are the ones whose sons and daughters cannot buy their first home and will welcome the drop in stamp duty.

Carr is very smart and has changed the game BIG TIME. I see VIC and others getting in on the deal within their next budgets. QLD not so sure.

Regards, Peter 147 :(

[Thommo]

Seems it's not only the NSW gov gunning for you, the Feds are hopping onto the bandwagon.

Anyone who has taken notice will be aware that my lady is with a big accounting firm. Just come home with the word that the ATO is examining the deductability of previously allowable exs. No detail but is likely to be regulation, not a big deal like disallowing neg gearing.

Don't shoot me, I'm just the piano player!

[geoffw]

It's almost as bad as super now - 30% when it goes in (for high income earners) and 15% when it comes out - why would I bother when I can get better returns and greater control over investing my own money after tax ?And don't forget the tax on profits as well.

[Aceyducey]

Have spent a busy day advising clients on the changes I can say, yes, there is a general panic in the market for the average 1 or 2 IP investor. Many angrey with Carr and threatening to vote him out.
Curious isn't it - when the government changes the investment rules it's the guys with few or no investments who get most upset.

People with larger investment portfolios adjust & move on.

I think that it's at least partly to do with peoples' mindsets.

The more flexible & creative you are, the easier it is to cope with changes & take the steps requires to minimise their negative effects and maximise their positive.

People with few or no investments are often not as forward thinking or close to pauper level - so no fallback position.

Of cause there are exceptions (people just starting out, etc) - but I'd say that mindset is a key factor in whether people have built a large investment portfolio (of any type of investments) or not.

Cheers,

Aceyducey

[jahn]

Hi Peter 147

Sorry, but must disagree with you. The first part of this sentance.
"Carr is very smart and has changed the game BIG TIME"

Changing the rules mid stream is not smart. Alienating 12 % of the population is not smart (even though he is obviously playing the numbers game).
As you stated "12% of aussies are IP owners so a whopping 88% are not."

Some possible changes that might occur as a result of his decision;

Buy IP's in another state, or has been suggested, another country, NZ :)
Change investor attitude or direction, eg shares
and the obvious possibility of resistance to buying IP's at all.
Possible result of these alternatives happening in big enough numbers and there could be problems with insufficient number of rentable properties in NSW.
If there are insufficient numbers for housing, who has got to supply them. The Gov. ? They are already scraping as much as they can from people who are trying to cover their own retirement, because the Gov can't fund the future numbers (and they basically admit this) so therefore they are making short sighted decisions with longer term ramifications. :(

BTW. Is that some sort of record speed for panic.? :rolleyes:

"yes, there is a general panic in the market for the average 1 or 2 IP investor."

Guess I'll just see what happens next, and wait a bit before buying the next one. It won't be a unit even though the land tax would be less. :D

jahn

[always_learning]

Acey, nobody likes the rules being changed during the game! Super is another thing many people have given up upon because the rules keep changing during the game. If I moved back to Australia I would need to pay 9% of my salary as super, but I dont feel I am getting 9% of value for it, I see it more like a tax than an asset. Ie. I would much perfer to invest the 9% in my own way...then I would feel it is worth 9%!

[geoffw]

I agree- perception is an important thing.

People look at the 2.25% and are calculating how much they will lose if they sell.

But, that tax will be deducted form their profit for CGT- so a taxpayer on the high bracket will get taxed effectively at 1.125%.

And it will not apply if you've made less than 12% profit on the sale.

A property bought for$350K and sold for $500K- held for > 12 months, highest tax bracket:
.Before- tax payable on 50% of the profit- about $37K (federal) tax
.After- Stamp duty on $500K @ 2.25% = $11,250.
Profit = $500,000 - 350,000 - 11,250 = $138,750
Tax on 50% of profit = $34,687

I've lost a little less than $2,500- but I've still made $138K. Why panic?

If I keep it, I'll now be paying land tax. $500,000 at .6% - $3,000 pa. But before I would have been up for tax on $500K less the $320K margin- $180K at 1.7%- $3,060. Now it's on $500,000 at .6%- $3,000.

I have one propert in my trust- that was previously at 1.7%, now at .4%. I'm better off.

And Jan says "Don't sell". So I will avoid another tax hit.

[Peter 14.7]

Hi Peter 147

Sorry, but must disagree with you. The first part of this sentance.
"Carr is very smart and has changed the game BIG TIME"

Changing the rules mid stream is not smart. Alienating 12 % of the population is not smart (even though he is obviously playing the numbers game).
As you stated "12% of aussies are IP owners so a whopping 88% are not."

Some possible changes that might occur as a result of his decision;

Buy IP's in another state, or has been suggested, another country, NZ :)
Change investor attitude or direction, eg shares
and the obvious possibility of resistance to buying IP's at all.
Possible result of these alternatives happening in big enough numbers and there could be problems with insufficient number of rentable properties in NSW.
If there are insufficient numbers for housing, who has got to supply them. The Gov. ? They are already scraping as much as they can from people who are trying to cover their own retirement, because the Gov can't fund the future numbers (and they basically admit this) so therefore they are making short sighted decisions with longer term ramifications. :(

BTW. Is that some sort of record speed for panic.? :rolleyes:

"yes, there is a general panic in the market for the average 1 or 2 IP investor."

Guess I'll just see what happens next, and wait a bit before buying the next one. It won't be a unit even though the land tax would be less. :D

jahn

Hi Jahn

I welcome your disagreement

I agree with your comments re changing the rules.

I have only recently raised in the forum that when economists model outcomes they often assume the same parameters will remain. Already here we are seeing mutiple possible solutions to the problems and some people.

GeoffW is saving land tax from his trust down from 1.7% to 0.4%. Congratulations Geoff. Will IP investors all move to trusts now? Will they invest in NZ or Qld? What will happen to NSW. As a long term investor myself looking for return I see benifits as well.

Long term ramifications? Hum, Bob Carr is on record that Sydney is big enough and the "house is full" sign would go up if it was up to him. Perhaps he WANTS less growth in to lessen the demand on infrastructure? IF prices/rent go up let them live in Dubbo! Decentralisation driven by market forces?

Personally he has bought in NZ and with all the other problems here in NSW ( don't go to the hospital) I feel he may give it up soon anyhow. What has he to prove?

I have met him a number of times in my past employment on Gov infrastructure and he not your average politician. He is much happier examining fossils and trees than kissing babies and businessmen. He really does not care about being popular.

My comment "yes, there is a general panic in the market for the average 1 or 2 IP investor."

Humm, got me .. Panic is a strong word that can be interputated one way or anther.

What I can advise and let the reader determine if this can be called a panic:

1. whilst at a clients offices yesterday ten potential and existing IP owners spoke to me to bemoan the changes and predict doom and gloom. Some very uspset. Suprisingly no potenital FHO jumping up and down?

2. I was at McGrath REA (biggest eastern suburbs agent) main Sydney Office at 4pm and the agents reported a lot of calls from potential sellers on the fence who had been tipped over to sell by the new tax. Geoff is right to say it is not all that bad but these investors are driven by the fear of the unknown. Also in Sydney of late I have had fielded more questions re selling than buying so perhaps this is the final straw?

3. Papers gave lots of press to the effect and impact. More support for the "crash is coming" doomsayers.

4. It is not fair, It will hurt. CGT aside and all that some one always gets hurt. For example:

I have a client who just inherited $2.65M of property. He has no other investments. He worked 15 years as a carer to his Aunt for this bonus.

She paid Land tax at 1.7% and rates every year.

He had expected to pay agents fee, marketing, me and thats it. No CGT applies.

Now for no benefit the NSW gov will take on $2.65M $59,625 of his money.

He has no job having been her carer so he has no career prospects and is aged over 40. Sure he still gets lot of money but the levy is still unfair in this instance.

The double irony is because he will be registered as the owner of the property on transfer he will probably also be excluded from savings in FHO stamp duty when he uses some of the fund to buy his own modest home!

Regards, Peter 147 :(

[BV]

I am not convinced that the state government is going to make much
money from these reforms.

Ok, they will gain some money from the Land tax, but they will lose the stamp duty from all the First Home Owners and won't be making much from the investors, because a lot of us simply won't sell.

[Peter 14.7]

Lastly, I leave for a long weekend in NZ tomorrow. Maybe I should take the cheque book and avoid the "horrible taxes" in OZ. Do a Bob Carr and buy in NZ ?

Hang on, how do I tell "SHE who must be obeyed" arrr,..umm..lets spend our holiday looking at property?!? :eek: (punch to ribs is non-verbal answer)

So some times paying taxes CAN be the less painful option :D

Peter 147

[Peter 14.7]

Can't leave it seems. O' well I can sleep on the flight!

Here's some comment by SMH raising some very interesting figures and questions re application of the new tax, sorry levy.

http://www.smh.com.au/articles/2004/04/07/1081326794314.html

Check this excert out for truth in politics taken from article:

How many NSW residents will be affected by the land tax changes? In 2000-01, there were 421,616 NSW residents reporting rental income to the Australian Tax Office. That number would have substantially increased since then.

Moreover, the number takes no account of properties held which are not rented, such as holiday homes. Since the land tax will no longer have a threshold, all properties which are not the principal place of residence will be taxed.

The Treasurer has indicated that about 250,000 people will be affected. The ATO statistics would indicate that the number is more likely to be about 500,000, double the State Government's estimate.

The problems start? Peter 147

[handyandy]

Hi Peter

In regard to your clients inheritance your quote

"I have a client who just inherited $2.65M of property. He has no other investments. He worked 15 years as a carer to his Aunt for this bonus.

She paid Land tax at 1.7% and rates every year.

He had expected to pay agents fee, marketing, me and thats it. No CGT applies.

Now for no benefit the NSW gov will take on $2.65M $59,625 of his money."
Would this not establish a cost base at the time of the inheritance ie $2.65m, and as such the tax will not apply as he will not have made the 12% threshold!!!! Better still make sure that the valuations are done the ensure a slight lose on sale (particualrly in the current doom and gloom environment.

Just a thought

Cheers

[jrc]

Many people are obviously making decisions without thinking through the ramifications. Whilst these new taxes might make people consider where they want their next investment property to be and what structure they might hold investments in, why should they make us want to sell. While land tax in NSW now might take away some of the need for multiple trusts, multiple trusts might still be a means for people in their estate planning so that control of different trusts goes to different beneficiaries so beneficiaries can make their own choice of selling or holding without affecting other beneficiary's tax

Say someone has purchased a property and has after purchase and anticipated selling costs $100,000 CG, there will be $24,250 CG tax, meaning if you reinvest there is only $75,750 additional equity so on a 20% deposit borrowing would be around $300,000. However, if the property is retained and borrowings are against the $100,000 Capital growth, borrowings could be $400,000.

If a lot of investors put their properties on the market prices may fall, but if they do there will be some good buying opportunities. I look at it as if my property falls in value so does my neighbours and that will be more affordable. Look at the interest I can save. Looking at one property I have last month it was valued at $284k, 12 months earlier at $200K. Even if it falls to $200K, then I can buy the neighbour for $200K. So over 25 years at 7% interest I will save something like $96,000 in interest (or $48,000 out of my pocket after tax) and $84000 in principal. Yet the tenant will be paying me the same rent whether the property is $200K or $284K. So in the longterm scheme 2.25% duty on the sale price on exit is irrelevant. If the property value falls only by $20K, my interest saving is $22k before tax (11k) after and $20000 in principal.

Looking at the land tax which for many of us will be 0.4% on the land value we have. If we had been on variable interest rates last year and didn't sell when mortgage rates were increased twice by 0.25% why would we sell now?

For many of us we are aiming to use property as a means to a self-funded retirement. But for many of the people who invested and now intend to sell solely because of the tax, what was their purpose in investment?

[Aceyducey]

Acey, nobody likes the rules being changed during the game! Super is another thing many people have given up upon because the rules keep changing during the game. If I moved back to Australia I would need to pay 9% of my salary as super, but I dont feel I am getting 9% of value for it, I see it more like a tax than an asset. Ie. I would much perfer to invest the 9% in my own way...then I would feel it is worth 9%!
Always_Learning - self-managed super funds.

Cheers,

Aceyducey

[Aceyducey]

As you stated "12% of aussies are IP owners so a whopping 88% are not."I'd like to point out the the effects are exaggerated in NSW.

They are the largest and wealthiest state.

12% of Australia's households is a national figure.

I'd anticipate that this would be much closer to 20% in NSW.

It only takes around a 5% shift in votes to unseat most governments in Australia.

With so many households in NSW holding IPs I'm sure the percentage of landlords previously voting for labour is well north of this 5% mark.

Interesting times!


The idea of a pre-sales stamp duty flurry of sales activity is a bit dubious.

Why sell your property at a discount (for a fast sale) now in a buyers' market to save the stamp duty? I'd suggest that you'd have to discount more than the impact of the stamp duty to sell fast!

Ergo - people are better holding on to their properties, maybe refinancing - business as usual!

Interestingly, the buzz in the ACT is that people will choose to buy into the new NSW developments occurring just over the border due to the removal of stamp duty for 1st homies......we'll see :)

I wonder if this is being reflected in other border regions - North Coast & Albury-Wodonga spring to mind.

Cheers,

Aceyducey

[havanfun]

I agree- perception is an important thing.

People look at the 2.25% and are calculating how much they will lose if they sell.

But, that tax will be deducted form their profit for CGT- so a taxpayer on the high bracket will get taxed effectively at 1.125%.

.


Notice how the NSW government gets it new taxes, but the Federal government has to pay out by having increased deductions on peoples tax returns. That's one way of getting back there GST revenue they were recently complaining about! Therefore in a round about way the entire national is affected.

[XBenX]

Im suprised about the amount of negative sentiment regarding this extra tax, my initial reaction is the same as Geoff's.

[AJK]

Everything the government touch turns to crap. Including super.
How are people meant to fund their retirement when the government is going to take half of the profit?

[Aceyducey]

Everything the government touch turns to crap. Including super.
How are people meant to fund their retirement when the government is going to take half of the profit?
AJK,

The government prints money & guarantees it's value - so basically this means that money fits your definition of faeces.

Doesn't leave you many places to go.

Cheers,

Aceyducey

[Gee Cee]

:) Hi all .

My opinion . Don't rush in & Sell. Etc, Etc. As now paying Land tax. :eek:

Sit on the fence for a while. (See what happens. Don't follow the crowd)
#@#@#%****OK Know ya sick of my comment :eek:

Basically I feel a lot of mums & dads people that would have bought will not.

So although not immediately; but in the future 3yrs +. Supply of property available may drop.

Therefore creating a high demand. With limited supply :confused:

But Capital Growth May be a question :confused: After last 4 yrs + boom :(

[Steve Navra]

Property remains a great investment . . . and will outlast this economically stupid State Government!

Until then, there are many other places to invest . . . other states, shares etc.

Actually NSW has received exactly what it deserves, for voting these lying cretins back into power in the first place. I seem to recall that Carr promised to remove all road tolls IF we voted him in.
Where is the accountability??
The man is dishonest . . . I say VOTE HIM and his socialist cronies OUT.

Angry,

Steve
:mad: :mad: :mad:

[np2003]

I knew something like this had to come, it was just a matter of time. Infact I have no doubt that more changes will come soon to other states.

The government here does not want AUS properties to be similar to the crazy UK property prices. They either have to shutdown all the seminar shows or implement new changes. I wonder if anyone has general statistics on the property seminars from 1995-2004. These seminars and books have had a huge impact lately. For example, Joe goes and sees such seminar, I wonder how many friends he tells his newly found 'secrets' of the rich to. Probably 10.. who go tell another 10. It spreads like an air-borne virus, everyone gets the itch and wants to make a quick buck. Sooner or later you have a boom, even single mums on welfare are buying IPs (through Lowdocs) :)

Of course, when people apply rules that have worked for fundamentally hundreds of years, they will make money. It's property, if you play the game right and follow good tips from the book and seminars you're bound by the laws of property investing, the game that use to be available to only the rich. Now, the secret's been out and every average Joe is applying it. Once the secret becomes a common 'household' tip, then somethings got to tip.. It's like a magician, once his magics are revealed, its worthless. Keep it a secret and his a rich man (Copperfield anyone?). Its a universal principle. Unless the government steps in, everyone's going to keep doing it.

Now don't trash the government, Bob's not sitting in his room with a few beer mates making up this policy. This is the government you are talking about, the RICHEST business in the country. They have advisors who suggest what needs to be done. Of course at the end of the day, votes are important so they need to create policies that appear to favour the average Joe.

I don't see him getting voted out, statistics show us that randomly picking 100 Joes will yield a few smarties. The averages will win the vote over the smarties. The smarties of course is speaking about some investors/members on this forum.

[skater]

Just my view.

I think that there are a lot of Mum & Dad Investors out there at the moment who are already hurting because they are too negatively geared for their comfort zone. Along comes the Government and imposes Land Tax on top of this (remembering of course that most investors only have one investment property and probably don't pay Land Tax). This will in turn have the effect of them selling out, despite the new Stamp Duty, and spend their Capital Gain on either other investments or doodads. I believe that many novice investors will think that property has too many stumbling blocks in the way at the moment, so this will bring on lower prices and higher rents.

It could be time to go shopping soon.

Cheers

[Alan H]

I think the saddest thig about this whole approach will be the damage it does to the newly found "let's provide for our own retirement" attitude in NSW.

Various seminars, books etc have really scared the pants off many to getting off their backsides, taking a bit of personal responsibility, get out of their comfort zones OR their own personal retirement may not be what they think it will be. If it's been a wakeup call for many.........good!!

In principle the Government loves this type of attitude as it may just reduce later funding burdens on the Government. However, human nature dictates that only some will take this type of action, only some will get these types of rewards....then what? Oh no........perceived inequality!! Some have more than others!! Quick.........let's chop down those wealthy rich investors asap......the attitude is lost and we go back to where we started.

I'm all for FAIR taxation. I want good schools, hospitals etc as much as anyone but the level of taxation on this asset class now goes beyond a joke. Also the gulf it artificially creates between other investment classes such as shares is simply wrong.

To be honest, while we investors will certainly get badly bruised by these taxes in many cases, we generally pocess the options/possibilities to pass some of these costs on through tax deductions and/or rent increases. But to who? Tenants and every tax payer in Australia.......that's who........and in the process many "mum and dad" investors will give up on providing for their own retirement because thay can't trust that the goal posts won't be moved again and again. The ripple affect damage of these types of short term policies are so much bigger than a simple short term grab for a few hundred million dollars.

Also, I personally know a few elderly people(definitely not wealthy) who worked hard to buy a little place down the coast as a weekender for their families etc. Pensioners in many cases. These people have none of the options to pass on costs that I do and many may well be forced to sell with this new Land Tax. Tell them to just go and find another couple of thousand dollars a year.

Yes....yes.....I'm glad first home owners got a reduction, and we might get better trains too........but as an overall package I think this one had some BIG holes in it.

[Aceyducey]

I think that there are a lot of Mum & Dad Investors out there at the moment who are already hurting because they are too negatively geared for their comfort zone. Why does this silly term 'mum and dad investors' keep popping up!

Would people STOP using the term, as it is used, in a derogatory fashion.

Just because you're a parent doesn't mean you're a naive & inexperienced investor. In fact I'd suggest that the majority of experienced investors ARE Mums and Dads.

Characterising investors by whether they have children is a rhetorical tactic designed to emotionalise the poster's viewpoint. It doesn't make the viewpoint any more relevant - in fact it may detract from the relevance.

Frankly I believe that even when starting out in investing, anyone in an established long-term relationship with the responsibility of a family & the capacity to throw two viewpoints at investing is likely to be a significantly better money manager & investor, than, say, a single with no commitments, a large paycheck & dollar signs in their eyes.

I'm a Dad investor & proud of it!

Cheers,

Aceyducey

[jahn]

Hi Acey
Agree with your sentiment re the number of investors in NSW and the 'swing' figure for elections, but I'm not sure if the figure is totally correct in the first place, I was only re-quoting from a previous poster. I do believe there will be a reaction from the landlords and the 'holiday home' owners as previously mentioned, even though it would be a shame to see a large change in attitude toward investing, because this quote by JRC seems to make a lot of sense.
"Looking at the land tax which for many of us will be 0.4% on the land value we have. If we had been on variable interest rates last year and didn't sell when mortgage rates were increased twice by 0.25% why would we sell now?"

Don't you just dislike commonsense logic with figures to back it up? :mad: :D

PS Steve . Thought your seminar last weekend was great. Will be seeing you soon re further investing, but does your last post mean that you really don't like Bob ? :rolleyes:

jahn

[Thommo]

Why does this silly term 'mum and dad investors' keep popping up!

Would people STOP using the term, as it is used, in a derogatory fashion.


Very true Acey. I hate the term too.

Now, Had Skater simply said many "investors" could be too highly leveraged for comfort, his case could have merit.

Thommo

[Nominees]

OK it has been a few days now and here are some thoughts.

1) If the sate gov has a short fall in its budget, after making more money than expected from the normal stamp duty, due to the property boom over the last two years, ... what does this tell you about their budgeting skills? this begs the question... where is all the money going???

An enquiry should be setup to investigate this.

2) Having the law work in retrospect would be "criminal", the gov should not be allowed to do this. If they want to pass a new law, at least it should take effect from the time the law was passed, and not back dated. This way people would have to make a conscious decision to buy into the market if they want to.

3) What happens if you buy a block of land, (and as we all know the value of a property is in the land, NOT the building), that increases in value while you are building on it. For example:
- land cost: 100K
- Construction cost: 200K
- Land value on sale: 150K

If you didn't build you would have to pay 2.25% stamp duty on 150K = 3,375
If you build you would pay 2.25% on 350K = 7,875

Having said this, building may be advantageous in some situations if the profit is less than 12% as mentioned in a previous post. So if the land had only gone up by 20K and you decided to build you would not be up for stamp duty...

4) I know that the previous 3 comments where a bit negative, but I actually believe that this new law will benefit the "serious" investors who were already up for land tax, or who had properties in trust. So I am not all against it... however I hope point (2) will hold and I will deal with point (1) at the next ellections.... (even though this law may benefit us in the long run, their complete mismanagement of our money is unacceptable.)

Nom

[Peter 14.7]

Hi Peter

In regard to your clients inheritance your quote

"I have a client who just inherited $2.65M of property. He has no other investments. He worked 15 years as a carer to his Aunt for this bonus.

She paid Land tax at 1.7% and rates every year.

He had expected to pay agents fee, marketing, me and thats it. No CGT applies.

Now for no benefit the NSW gov will take on $2.65M $59,625 of his money."
Would this not establish a cost base at the time of the inheritance ie $2.65m, and as such the tax will not apply as he will not have made the 12% threshold!!!! Better still make sure that the valuations are done the ensure a slight lose on sale (particualrly in the current doom and gloom environment.

Just a thought

Cheers


Hi Handy

Good Point. When I find out, I will post.

FYI this client has decided therre are too many unknowns at the moment and is going to hold off. Another friend however has decided to sell her ex PPOR unit now IP unit. Question is. CGT gives 6 years grace for ex PPOR. What about carrs exit tax? :confused:

Regards Peter 147

[Patosan]

I was wondering what the land tax situation is in other states.
I know Vic has a threshold for privately owned properties.
Can people enlighten me on the case in other states ?

[Aceyducey]

Patosan,


You can find Land Tax information state by state from the Offices of State Revenue.

A central link to all of the departments is here; http://www.ato.gov.au/nonprofit/content.asp?doc=/content/33750.htm

To my knowledge no one has an overall guide by state to land tax...at least I haven't found one yet :)

Cheers,

Aceyducey

[see_change]

Was interested to here that the NSW gov has suddenly found they have a 1 Billion Dollar Surplus for this year. That's a 1.3 BIll turnaround in about two weeks. :eek:

The Cynic in me thought there must be an election coming up , but that's federal.

See Change

[Thorpey]

Was interested to here that the NSW gov has suddenly found they have a 1 Billion Dollar Surplus for this year. That's a 1.3 BIll turnaround in about two weeks. :eek:

The Cynic in me thought there must be an election coming up , but that's federal.

See Change

Yeah SC,

but will they no longer have the need to tax investors to get back the so-called $600Million odd. I doubt it.

Anyway, I heard on a radio property program that these new taxes will only apply to properties purchased after the announcement. Have you or anyone else heard anything about this ?

Thorpey

[Peter 14.7]

Good One Gee Cee

They must have found it ($1BN) in the pockets doing the washing!!

Also if this tax is fair how come:

1. Exit Tax applies to all IP!

2. FHO Stamp Duty Concession only to NEW Buyers?

Why not apply exit tax to those from date of announcement or legilasation? That's how they applied CGT post 1985.

and

What about those who inherit homes/farms and want to keep but not rent out? The Land Tax still bites.

Spoke to a tradesperson I know who promised his now deceased mum never to sell the family home. It on the central coast so she wanted it to be a holiday home for the family forever more.

He cannot rent it out but each year it will cost him $800 and rising. He now has to consider breaking his death bed promise.

And what about if you inherit a farm. My sister has just done so to a value of $0.5M. Does land tax apply. What defines a primary producer when the farm is in drought and hence no livestock.

This tax and duty will benefit professional investors first and the small investor last. That may seem good but overall it's bad for NSW.

It a rort, Peter 147

[jahn]

Hi see change
I work in a retail organisation.
If an operator gains or loses $10 or more from their register, they have to be spoken to in the office, and warned about further mistakes. If they are out by anything as outrageous as $100, there is almost uproar, and a national inquiry.
If I have worked this out correctly, that is .000076% of the amount the Gov has "found" in 2 weeks. I believe the word is incompetent. With all the TV adds and ranting re budget shortfalls, changing taxes to comensate, if it wasn't so serious, I would suggest someone buy them a bloody calculator. :rolleyes:
jahn

[Aceyducey]

Was interested to here that the NSW gov has suddenly found they have a 1 Billion Dollar Surplus for this year. That's a 1.3 BIll turnaround in about two weeks. :eek:
Criminals!

If they have ANY decency whatsoever they will reverse the tax decisions of the last few weeks.

I hope people remember their incompetence & duplicity when the next election year comes round...unfortunately I will not be able to vote against them. However I do have assets affected by their decisions.

Cheers,

Aceyducey

[Alan H]

Criminals!

...unfortunately I will not be able to vote against them. ........................

Aceyducey

Well I can Acey!

And I can assure you come election morning, I will be running.......nay sprinting............to vote them out.

It's certainly angered me.......it will be interesting to see how this mini-budget affects Carr at election time.

If your listening Bob......rest assure, unless there are some changes......you've certainly lost a vote here!!

[see_change]

You have to remember that this is a Government that got in on a promise which they knew there was no way they could keep.

Namely to take the toll off the M4. This gave them enough Votes in the catchment area of the M4 to swing enough seats their way. Of course when they got in they found there was a Contract that stopped them from doing this.......

By the time the next election came around the voters had forgotten this.

The last election was early last year, and by the time the next election comes around , this new tax will be well and truly forgotten by the majority of voters who are not property investors.

Personally I dont like Bob Carr at all , but I do "respect" his ability as a "politician " . Bob Carr's biggest threat is Mark Latham getting in.

See Change

[investor]

Im suprised about the amount of negative sentiment regarding this extra tax, my initial reaction is the same as Geoff's.

Another friend however has decided to sell her ex PPOR unit now IP unit. Question is. CGT gives 6 years grace for ex PPOR. What about carrs exit tax?

Regards Peter 147

What have you to say about that XBenX/Geoff ?

There is no CGT in this case and yet the exit tax will still apply :mad:

Regards

Investor :)

[glenC]

Jum Jones mentioned that polies invest too. Bob Carr sure knew something when he invested in his couple of properties in New Zealand.
The recent changes to Land Tax and the introduction of the Exit tax have killed sales in the Real Estate market in NSW. In the last couple of days I have heard of six couple that have flown to Qld to look at investment property and have also heard that sales and enquiries in Qld have gone balistic. Just watch the prices up there go thru the roof.
With rental returns what they are in Sydney at the moment (static for the last four or five years and recently slipping backwards - we have just had four properties vacant at the same time, one that is freshly painted and well presented in a good area with asking rent reduced by $10/w has been vacant for over 10 weeks. Just finding the Land Tax on that one is going to be impossible let alone the other expenses.), by the time you take out rates, maintenance, bank interest and management fees and then add on the ever escalating Land Tax there is nothing left. They are really negatively geared.
Carr and Egan sure know how to screw up this state. The SOBs still get their pay and perks no matter what they do.
Egan even had the gall to say that we will get half of the exit tax back because it would reduce the capital gain on the property. GOOD ONE MIKEY!!!
Does he really think that we are that stupid?
They make me that mad that I say 'BRING BACK THE BIFF' :mad:

[geoffw]

Egan even had the gall to say that we will get half of the exit tax back because it would reduce the capital gain on the property. It will reduce the Capital Gains TAX on the property. So if you are on the highest tax bracket, you will half back.

Until the fed government ask for their little bit back.

But if lots of people are selling up in NSW and buying in Queensland, perhaps it's smart to be buying in NSW and not following the herd?

[glenC]

Hi GeoffW
Thanks for your reply. I agree with you about not following the herd.
It appears that a shortage in rental accommodation could already be occurring as more and more investors opt out of NSW.
We recently have had four out of six rental properties in Sydney vacant. One of those is in a good area and has been freshly painted, however it stood vacant for 10 weeks (ouch the Land Tax burden from that hurts, let alone finding the Mortgage repayments). Suddenly this week, all have been snapped up by Tenants.
The outcome that I envisage is that rents will increase due to the changes in Land Tax and the new Vendor Transfer Duty (Exit Tax). In fact I am suggesting that Landlords should add the following clause to their next rent increase letter:-
'Due to the recent changes in State Land Tax Legislation and the introduction of the State Vendor Transfer Duty, we are now paying $XX in Land Tax per week and unfortunately are having to pass some of this increase in overheads onto you. Other increases in Council Rates and Maintenance and a 40% on Building Insurance have also occurred.
We now find ourselves forced to increase your rent by (say $1/2XX) as of the __/__/__ to try and recover some of these additional oncosts.'
Thoughts anyone?

GlenC

[Mondie]

Attached is a "ready reckoner" on the stamp duty and land tax changes sent to me by an agent we keep in touch with in NSW. Could be handy for some.

The agent who sent me this works in the far south NSW coast. He reckons the market there is still strong but a lot of the tyre kickers have dropped out. There hasnt been any real change in selling activity in his opinion as a result of these changes.

Cheers

[XBenX]

What have you to say about that XBenX/Geoff ?

There is no CGT in this case and yet the exit tax will still apply :mad:

Regards

Investor :)

Sorry, havent been posting for a bit.

The reason the tax doesnt bother me is the fact that as a buy and hold investor the only impact on me is how it effects the rest of the market.

In one of my other posts I worked out what I thought the potential effect could be... again I felt it was negligible.

[Peter 14.7]

Hi All

On the news I saw John Brogden (NSW Opposition Leader) vow is elected he would abolish the 2.2% sales tax and the changes to land tax, but keep FHO stamp duty free limit to $500k.

Says he will do it through savings but Egan (NSW Treasurer) says it is not there.

Firstly, Good to see him acknowledging the TOTAL unfairness of a tax that applies even if you make a loss. A true first for any Gov.

Secondly, having worked in Gov there may be many fat cats but a lot of dead wood. NSW has no forced redundancy so I know of 74 year old still turning up and taking their $$ but of no real value.

FYI How does this loss occur?

If you buy for $100k and sell for $130k in ten years you have increased at approx. 3% average p.a. which is CPI. No real gain. Especially as you could get 6% from the bank no risk.

But that is 30% gain on base, over the 12% limit so you are liable for the tax. The 12% also totally excludes buying costs such as SD, legal (I have read).

I say a great article outlining this in the SMH Domain but could not find it on the web.

Will try again, Peter 147

[Aceyducey]

We'll see if Brogden keeps his promise if he ever gets elected :)

Basically the fee on property sale will push more people interstate and to shares - they don't tax share profits the same way....

Cheers,

Aceyducey